The transformation of the century-old chemical company DSM

The century-old Royal DSM Group has taken a key step in its strategic transformation, announcing two major mergers and acquisitions within a day: the merger with the world's largest private flavor and fragrance company, Firmenich, and the sale of its engineering plastics business for 3.7 billion euros.

After the two transactions are completed, the former chemical giant DSM will be completely transformed into a health, nutrition and bioscience company.

Merger of two century-old stores

On May 31, DSM announced plans to merge with privately held Swiss firm Firmenich to form a new company called "DSM-Firmenich" (hereinafter "DSM-Firmenich"), focusing on nutrition, beauty and wellness.

DSM shareholders will own 65.5% of DSM-Firmenich; Firmenich shareholders will own the remaining 34.5% and receive EUR 3.5 billion in cash. The deal, which values DSM at 25.3 billion euros ($27.1 billion), is expected to close in the first half of 2023.

The combined DSM-Firmenich will be listed on the Amsterdam Stock Exchange in the Netherlands, with total revenue of EUR 11.4 billion in 2021, adjusted EBITDA of EUR 2.2 billion, and will employ 28,000 people.

The transaction integrates Firmenich's fragrance and fragrance business with DSM's health and nutrition portfolio, and the new company will have dual headquarters in Switzerland (Kaiserlausted) and the Netherlands (Maastricht).

The combined company will consist of four divisions: Fragrance with an estimated total revenue of EUR 3.3 billion, Food Ingredients and Fragrances with sales of EUR 2.7 billion and Health, Nutrition and Care with sales of EUR 2.2 billion, Sales in the Animal Nutrition and Health segment will reach 3.3 billion euros.

Firmenich expects revenue to rise to CHF 4.6 billion ($4.8 billion) and adjusted EBITDA to exceed CHF 900 million by the end of the fiscal year ending June 2022.

DSM's Health, Nutrition and Biosciences business generated sales of EUR 7.3 billion in 2021 and adjusted EBITDA of EUR 1.4 billion.

The combined DSM-Firmenich will have a network of 15 R&D facilities covering all disciplines in the markets served and a portfolio of more than 16,000 patents covering approximately 2,600 patent families. Total R&D spending in 2021 is EUR 700 million.

DSM Chairman Rayson will become Chairman of DSM-Firmenich and Patrick Firmenich will be named Vice Chairman. Matchett and de Vreeze will be named co-CEOs of the new company, responsible for CFO and COO, respectively. Emmanuel Butstraen, currently president of Firmenich Fragrances, will become Chief Integration Officer.

According to public information, Firmenich was founded in 1895 and is headquartered in Geneva, Switzerland. It is a private family-owned company with a history of 125 years, mainly engaged in research, creativity, production and sales of daily chemical flavors, edible flavors and raw materials.

DSM sells engineering materials business

On May 31, DSM announced that it had reached an agreement to sell its engineered materials business to Avon Capital and Lanxess for an enterprise value of 3.85 billion euros.

DSM's Engineered Materials business generated adjusted EBITDA of EUR 334 million on total sales of EUR 1.5 billion in 2021. After deducting transaction costs and capital gains tax, DSM expects to receive around 3.5 billion euros in net cash.

According to a press release issued by LANXESS, Advent will pay DSM about 3.7 billion euros for the business to be combined with the LANXESS Performance Materials business into a joint venture. Advent will pay an additional 1.1 billion euros to LANXESS, which will hold about 40 percent of the joint venture.

The transaction is expected to close in the first half of 2023, and the joint venture is expected to generate annual sales of around 3 billion euros.

DSM's engineered materials business includes polyamides (PA6, PA66), specialty materials (PA46, PA410, specialty polyesters and PPS). The division has approximately 2,100 employees working in 8 production sites and 7 research sites around the world.

The LANXESS High Performance Materials (HPM) business unit is one of the leading producers of PA6 and PBT engineering polymers, as well as thermoplastic fiber composites. HPM employs 1,900 people at 10 production sites and 7 research sites around the world.

After three years, LANXESS has the option to divest its stake in the joint venture at the same valuation, similar to what it did when it spun off its synthetic rubber business into a joint venture with Saudi Aramco in 2015.

DSM has been transforming

"Transformation" is DSM's genes engraved in its bones.

DSM was established by the Dutch government in 1902 to mine coal in the southern province of Limburg.

Starting from coal, gradually develop coke oven gas, fertilizers, rubber and plastics, fine chemicals and high-performance materials.

DSM started its diversification journey as early as 1919 when it set up a coking plant.

After 1945, diversification into bulk chemicals and petrochemicals accelerated.

In 1973, DSM closed its last coal mine and became a chemical company.

Since the 1990s, DSM has been fully privatized and transformed again, selling almost all of its bulk chemicals business.

At the end of the 20th century, DSM entered the field of biotechnology with the acquisition of Gist-brocades.

In 2002, DSM sold its petrochemical business to SABIC.

In 2003, the acquisition of Roche's vitamins and fine chemicals business opened a new chapter of transformation.

In 2005, DSM acquired NeoResins, a company in the field of specialty water-based acrylic and polyurethane resins for coatings, coatings, adhesives and inks.

In 2010, DSM sold its elastomers business. Prior to this, DSM had divested DSM Agriculture, Melamine, Citric Acid, Stamicarbon and its interests in energy.

In 2011, DSM acquired Martek, a nutritional growth platform focused on polyunsaturated fatty acids (PUFAs).

In 2012, DSM acquired Fortitech to strengthen its human nutrition business; acquired Canadian Marine Nutraceuticals; acquired Kensey Nash to strengthen its biomedical business.

In 2013, DSM acquired Tortuga, a leader in organic trace elements for animal nutrition and health care in Brazil.

In 2015, DSM and CVC Capital Partners co-founded ChemicaInvest, which acquired DSM's polymer intermediates and composite resins business.

In 2020, Covestro completed the acquisition of DSM's resins and functional materials business for 1.6 billion euros.

In September 2021, DSM announced a new strategic decision: the company will pool all its resources and capabilities to address pressing social and environmental issues related to the way the world produces and consumes food. In line with this strategic transformation, DSM has simplified the company's operating structure and reorganized its Health, Nutrition and Bioscience businesses into three business groups.

The Food and Beverage business group integrates the food, beverage and pet food businesses of the former DSM Food Ingredients Technology and DSM Nutritional Products. The business group currently has sales of more than 1 billion euros.

The Health, Nutrition and Care segment, with sales of approximately EUR 2.5 billion, aims to help the world's growing population maintain health through nutrition and care.

The Animal Nutrition and Health business group, with current sales of more than 3 billion euros, will focus on the innovative product business in the future, driving a practical and rapid transformation of sustainable animal protein production.

On April 20, 2022, DSM announced the sale of its protective materials business to Avient for a value of 1.44 billion euros (approximately RMB 10.1 billion), and the transaction is expected to be completed in the second half of this year.

DSM said the agreement to sell its engineered materials business marked "DSM's transformation into a focused scientific leader in health, nutrition and biosciences".